Cryptocurrency in Celsius’ Earn Accounts belongs to the bankruptcy estate, and not to the depositors who placed it there, according to a January 4 memorandum opinion from Judge Martin Glenn of the U.S. Bankruptcy Court in the Southern District of New York.
The decision is a blow to the individual customers who deposited crypto assets into roughly 600,000 “Earn” accounts (the “Earn Accounts”) maintained by Celsius Network LLC and its affiliates (the “Debtors”). Shortly before the Celsius Debtors filed bankruptcy in July 2022, the Earn accounts contained crypto valued at approximately $4.2 billion. The Debtors froze withdrawals from the Earn Accounts in advance of the filing, and the bankruptcy stay prevents withdrawals after filing. Now, Earn Account customers who had hoped for a full return of their cryptocurrency are left holding general unsecured claims and are potentially facing a steep loss.
In reaching his decision, Judge Glenn distilled the issue into one of contract law. He held that the Terms of Use that governed the Earn Accounts were a valid, binding contract between the Celsius Debtors and the Earn Account holders. Moreover, those terms of use “unambiguously transfer title and ownership of the Earn Assets deposited in Earn Accounts from Account Holders to the Debtors.” See Opinion, Docket No. 1822 at p. 30.
Depositors who placed crypto into the accounts were asked to agree to terms of service. The Celsius Debtors had eight versions of these terms, and uncontroverted evidence showed that 99% of Earn Account holders accepted version six or a later version.
The latest version of the terms of service stated that, in exchange for certain payable rewards, depositors “grant Celsius . . . all right and title to such Eligible Digital Assets, including ownership rights . . . .” The agreement continued:
In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible…
